What Rising Interest Rates Mean for Home Prices

It’s a hotly debated question among economists and analysts right now: What will the recent spike in mortgage rates do to the housing market?

Mortgage rates fell to 4.75% last week, down from 4.8% for the average 30-year fixed-rate two weeks ago, according to the Mortgage Bankers Association. Existing home sales in August hit a 6½-year high, rising by 1.7% from July, according to the National Association of Realtors. The report measures sales that closed for contracts that were signed one or two months earlier. Weekly data on mortgage-purchase applications suggest, however, that higher mortgage rates are leading to a mild slowdown in demand, and a modest drop in the average amount of debt sought by prospective buyers. The upshot: higher rates could have a greater impact on price than on the total level of sales.